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More FAA: Why AT&T Mobility Makes Sense— And Why It Likely Isn’t the End of Class Arbitration

By Philip J. Loree Jr.September 12, 2011 | Print

Complete article first published in the September 2011 issue of Alternatives to the High Cost of Litigation available online to current subscribers.

Wrapping Up AT&T Mobility

The takeaway: The Supreme Court preserves arbitration’s benefits and, therefore, a powerful incentive for choosing arbitration.

The practice: Barring new law or regs, or an agreement, consumer class arbitration is gone. Except, maybe, in cases involving federal statutory claims.

The future: More education on consumers’ benefits? Or more cramdowns? And will the Supreme Court grant cert in American Express Merchants’ Litigation this fall?

Associate Justice Antonin Scalia’s majority opinion in AT&T Mobility LLC v. Concepcion, No. 09-893, slip op. (April 27, 2011) (available at www.supremecourt.gov/opinions/10pdf/09-893.pdf) adopted an ingenious yet pragmatic construction of Federal Arbitration Act Section 2’s saving clause. Under the clause, state-law “generally applicable contract defenses” are saved from preemption, provided that their application to an arbitration agreement does not “stand as an obstacle to the accomplishment of the FAA’s objectives.” Slip op. at 9.

Part 1 of this article—“Saving the Savings Clause: The Supreme Court Eases Business’s Arbitration Worries—and Redefines the FAA,” 29 Alternatives 115 (June 2011)—explains that the Court found that the FAA’s principal objective was to “promote” arbitration that works the way arbitration is supposed to work. It stated that the FAA’s “overarching purpose”—“to ensure the enforcement of arbitration agreements according to their terms. . . .”—affords “parties discretion in designing arbitration processes.” “[T]he point” is to “allow for” and “facilitate” “streamlined procedures tailored to the type of the dispute.” Slip op. at 9-10.

The Court held that the Discover Bank rule—a California Supreme Court construction at the core of AT&T Mobility—did not promote arbitration as “envisioned by the FAA,” Slip op. at 17, but “interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Slip op. at 9 & 17 (emphasis added).

This month’s Part II explains in detail why. It describes how the Court rejected key arguments to the contrary, and what Associate Justice Clarence Thomas had to say in his thoughtful concurring opinion.

It concludes by analyzing Associate Justice Stephen G. Breyer’s dissent, arguing that adopting his literal interpretation of the Section 2’s savings clause would have required the Court to repudiate or ignore decades of its FAA jurisprudence, and endorse a new and different FAA objective: putting arbitration agreements on the same highly regulated and procedurally burdened footing as agreements relating to litigation.

Then, the article concludes with a look not only at the implications of the case, but also a look ahead to other pending matters that will keep class action arbitration questions alive, despite the appearance of finality in AT&T Mobility.

All of this follows not only the June Alternatives Part I, but an avalanche of attention on the decision both in the ADR and legal communities as well as in the political arena. The decision was cited in the reintroduction in Congress of the Arbitration Fairness Act. For details on the legislation and the reaction to the case, see “Congressional Arbitration Reform Returns—But It’s Not Moving Soon,” 29 Alternatives 139 (July/August 2011). For a roundup of how the Court used AT&T Mobility to reverse and remand three cases less than a week after the decision, see “AT&T Mobility’s Instant Progeny: Three Reversals, and an Argument Granted,” 29 Alternatives 123 (June 2011). And for additional commentary, see Neal Troum, “Drawing a Line after AT&T Mobility: How Far Does the FAA Reach into State Contract Regulation?” 29 Alternatives 129 (2011 cover story).

THE ANALYTICAL FRAMEWORK

The U.S. Supreme Court assessed whether Section 2 preempts the so-called Discover Bank rule, which deems class waivers in adhesion contracts unconscionable and against public policy in circumstances where a consumer alleges widespread, small-dollar fraud. Discover Bank v. Superior Ct., 36 Cal.4th 148 (2005). The Court addressed two broad questions:

  1. What are the structural differences, if any, between the arbitration contemplated by the express terms of the parties’ agreement and the arbitration contemplated by the state law?
  2. Does arbitration contemplated by state law allow the parties to realize the benefits of arbitration that the FAA was designed to provide?

The answer to the first question was fairly straightforward in AT&T Mobility and probably would be equally straightforward in most cases. Under the parties’ agreement, class arbitration was prohibited, so the contract terms required bilateral arbitration.

Under Discover Bank, there would either be (a) no arbitration—recall that the AT&T Mobility arbitration agreement contained a “blowout” clause that voided the arbitration agreement if the courts declared the class waiver invalid, void or otherwise unenforceable; or (b) class arbitration if the parties agreed in writing post-dispute to proceed on that basis.

The differences in structure between the bilateral arbitration the parties agreement contemplated and the class arbitration Discover Bank contemplated were discussed by the Court last year in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010).

Stolt-Nielsen identified the following “fundamental” structural differences between class and bilateral arbitration and noted “just some” of them:

1. “An arbitrator chosen according to an agreed upon procedure no longer resolves a single dispute between the parties to a single agreement, but instead resolves many disputes between hundreds or perhaps even thousands of parties[;]”

2. Under the American Arbitration Association’s Class Arbitration Rules the “presumption of privacy and confidentiality” that ordinarily applies in bilateral arbitration does not apply in class arbitration, “thus potentially frustrating the parties’ assumptions when they agreed to arbitrate[;]”

3. A class arbitration award does not simply purport to bind the parties to a single arbitration agreement but “adjudicates the rights of absent parties as well[;]” and

4. “[T]he commercial stakes of class-action arbitration are comparable to those of class-action litigation, even though the scope of judicial review is much more limited[.]”

130 S. Ct. at 1776.

In AT&T Mobility, the Court said Stolt-Nielsen was “instructive.” It explained that the differences between bilateral and class arbitration identified in Stolt-Nielsen was “obvious as a structural matter”:

Classwide arbitration includes absent parties, necessitating additional and different procedures and involving higher stakes. Confidentiality becomes more difficult. And while it is theoretically possible to select an arbitrator with some expertise relevant to the class-certification question, arbitrators are not generally knowledgeable in the often-dominant procedural aspects of certification, such as the protection of absent parties. Slip op. at 13.

REALIZING FAA BENEFITS

The FAA promotes arbitration by making arbitration an attractive alternative to litigation. The FAA does that by enabling parties to realize benefits that litigation does not or cannot provide. This is powerful incentive for parties to agree to choose arbitration over litigation.

The FAA does not promote arbitration for arbitration’s sake or simply because arbitration can be an effective way of resolving disputes. Arbitration serves important governmental and public interests by shifting to private parties substantial time and money costs that otherwise would be incurred by an overburdened and publically financed judiciary. The benefit of that cost savings is, at least in theory, passed on to the states, the federal government, and the general public, which benefits from increased judicial resources and reduced demand on the public fisc.

In Stolt-Nielsen, the Court said that arbitration benefits include “lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.” 130 S. Ct. at 1775. In AT&T Mobility, the Court identified another important benefit, procedural “informality.” And in both Stolt-Nielsen and AT&T Mobility, the Court at least implicitly recognized that the ability to allocate dispute resolution risk rationally was yet another benefit. See slip op. at 10, 15-17.

Discover Bank deprived the parties of benefits the FAA was intended to provide, for three principal reasons:

[T]he switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment[;] . . .

[C]lass arbitration requires procedural formality[;] . . . [and]

[C]lass arbitration greatly increases risks to defendants. . . .

Slip op. at 14-17. (Emphasis is in the opinion.)

PROCEDURAL MORASS

The Supreme Court determined that Discover Bank perversely reversed the terms of an important tradeoff the FAA encourages parties to make, and presumes parties make when they enter into an arbitration agreement: the opportunity to realize the benefits of private, informal, speedy and efficient dispute resolution for the price of foregoing some of the formal, procedural protections that litigation offers—including appellate review.

The Court explained that classwide proceedings can’t serve their intended purpose unless the decision maker and the parties invest the substantial time and monetary resources necessary to ensure adequate procedural protections consistent with constitutional requirements.

An arbitrator presiding over class arbitration said the Court, before addressing the merits, must “decide . . . whether the class itself may be certified, whether the named parties are sufficiently representative and typical, and how discovery for the class should be conducted.” Slip op. at 14.

Citing American Arbitration Association statistics, the Court said the increased procedural complexity of class arbitration makes classwide resolution less speedy and more procedurally formal than bilateral arbitration.

Those statistics showed that (a) between January and August 2007, arbitrators decided the merits of a typical, bilateral consumer arbitration in an average of about six months, and in four months when they based their decisions solely on documentary evidence; (b) as of September 2009, the AAA had opened 283 class-arbitration cases, of which 121 were pending; (c) of the 162 AAA class arbitrations that were no longer pending, all had been settled, withdrawn or dismissed, and not one “had resulted in a final award on the merits;” and, (d) with respect to the no-longer-pending cases, “the median time from filing to settlement, withdrawal or dismissal—not judgment on the merits—was 583 days, and the mean was 630 days.” Slip op. at 14.

Instead of permitting parties to trade benefits and protections offered by compliance with formal procedures in favor of the benefits offered by private, informal, speedy and efficient dispute resolution—the incentive the FAA offers to encourage parties to opt out of the court system—Discover Bank forces parties to either opt back into that system or into a dispute resolution system that requires them to sacrifice FAA-promised benefits in favor of something “more likely to generate procedural morass than final judgment. . . .” Slip op. at 14.

REQUIRING WHAT THE FAA ESCHEWS

The Court also explained that class arbitration requires something FAA arbitration eschews: procedural formality on par with that imposed by Fed. R. Civ. P. 23 in class-action litigation. Informal dispute resolution is part of the FAA incentive package, but legal realities make it impossible for class arbitration to offer that incentive.

The Court noted that the AAA’s class-arbitration rules “mimic the Federal Rules of Civil Procedure for class litigation. . . .” And while parties could, in theory, devise their own class procedures, they “presumably” would have to ensure that “class representatives . . . at all times . . . adequately represent absent class members,” and that “absent class members . . . [are] afforded notice, an opportunity to be heard, and the right to opt out of the class.” Slip op. at 15.

The Court found it “unlikely” that “Congress meant to leave the disposition of these procedural requirements to an arbitrator,” particularly since class arbitration did not exist in 1925, when it enacted the FAA. Slip op. at 15. The Court considered it “at the very least odd to think that an arbitrator would be entrusted with ensuring that third parties’ due process rights are satisfied.” Slip op. at 15.

‘IMPOSING’ IRRATIONAL RISK ALLOCATION

The final point the Court made was that class arbitration imposed undue risk on defendants—risk the parties agreed to mitigate by expressly prohibiting class arbitration. One of contract law’s purposes is to enable parties to allocate transactional and other risks. See Slip op. at 15; cf. Kel Kim Corp. v. Central Mkts. Inc., 70 N.Y. 2d 900, 902 (1987)(“the purpose of contract law is to allocate the risks that might affect performance. . . .”). The FAA provides parties with substantial leeway to make rational decisions about the allocation of dispute-resolution risk.

The Court said that imposing class arbitration “greatly increases risks to defendants,” principally because FAA Section 10 provides only limited review of arbitration awards. Slip op. at 15. Section 10 review is “focused on misconduct rather than mistake,” and is “not subject to expansion by agreement.” Slip op. at 16.

By contrast, “class litigation procedures” feature “multilayered review,” including de novo review, and clearly erroneous factual appellate review, at both the certification and final judgment stages. And while the AAA Class Arbitration Rules also permit judicial review at the certification stage, those rules do not purport to—and indeed could not—authorize judicial review under appellate standards. See Slip op. at 15-16.

In bilateral arbitration, said the Court in AT&T Mobility, “the cost[]” that “errors will go uncorrected” is limited to the amount of risk at stake in an “individual dispute[],” and “presumably outweighed by savings from avoiding the courts.” But when the cost of a single error may be liability to “tens of thousands” of claimants, “the risk . . . will often become unacceptable.” With this heightened risk, defendants will be pressured into settling questionable claims.” Slip op. at 16.

The risk allocation inherent in nonconsensual class arbitration, said the Court, makes “[a]rbitration. . . . poorly suited to the higher stakes of class litigation.” Slip op. at 16.

Implicit in this conclusion was that imposing class arbitration deprives defendants of another benefit that arbitration is supposed to offer: the ability to make rational decisions about allocating dispute resolution risk. The Court found “it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.” Slip op. at 16-17.

The Concepcions argued that “class procedures are not necessarily incompatible with arbitration” because parties sometimes agree to such procedures. Slip op. at 17. But the Court recognized that the conclusion did not follow from the premise.

Hearkening back to the hypothetical state laws that the Concepcions conceded would be incompatible with arbitration, the Court said that parties could, consistent with FAA, agree to arbitrate “pursuant to the Federal Rules of Civil Procedure, or pursuant to a discovery process rivaling that in civil litigation.” But while parties could agree to such procedures, a state could not impose them because arbitration according to those terms would not be “arbitration as envisioned by the FAA” and would “lack[] [the] . . . benefits” of such arbitration. Slip op. at 17.

REJECTING THE NECESSITY ARGUMENT

The Court also summarily rejected the argument that a state could impose class arbitration in circumstances where it deems class proceedings “necessary to prosecute small-dollar claims that might otherwise slip through the legal system.” States, wrote Justice Scalia in the majority opinion, “cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.” Slip op. at 17.

The Court added that “the claim here was most unlikely to go unresolved.” Under AT&T Mobility’s consumer-friendly arbitration scheme, claimants were entitled to $7,500, plus double attorney fees, if they obtained an award in excess of AT&T Mobility’s last settlement offer.

The Court pointed out that both lower courts had acknowledged that AT&T Mobility’s scheme provided meaningful incentives for consumers to pursue small claims, and that the district court suggested those incentives were more effective than class action litigation.

The district court said the arbitration process encouraged consumers to pursue “meritorious claims that are not immediately settled[,]” and said that “the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which ‘could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars.’” Slip op. at 18 (quoting the district court, with emphasis by Scalia). The Ninth Circuit conceded that “aggrieved customers who filed claims would be ‘essentially guarantee[d]’ to be made whole.” Slip op. at 18, (quoting the Ninth Circuit decision).

THOMAS’S CONCURRENCE

Associate Justice Clarence Thomas wrote a concurring opinion that set forth an alternative construction of Section 2. But he “reluctantly” joined the majority opinion for two reasons.

First, his alternative construction had not been fully developed by the parties in the case, and, in any event, the majority’s construction “will often yield to the same outcome” as his own. Concurring Opinion, slip op. at 2.

Second, he believed the Court should rule definitively on the construction question, explaining that “when possible, it is important in interpreting statutes to give lower courts guidance from a majority of the Court.” Id.

As discussed in Part I in the June Alternatives, Thomas does not believe that “purposes and objectives” preemption is a valid constitutional doctrine. That apparently is why the Court’s opinion does not technically turn on that doctrine, but instead construes Section 2 as incorporating “purposes and objectives” preemption principles.

That distinction is without a difference with regard to the outcome, but it was understandably important to Thomas, who said he “continued to adhere to [his] views on purposes-and-objectives preemption. . . .” Id.

Thomas’ Section 2 construction is cogent and at least as sensible as the one endorsed by the majority opinion. Section 2 says arbitration agreements are “valid, irrevocable and enforceable save upon such grounds as exist in law and equity for the revocation of any contract.” Id.

Whereas the statute uses the terms “valid, irrevocable and enforceable” to describe the characteristics of an arbitration agreement governed by the FAA, it uses only the term “revocable” to describe the subset of FAA-governed arbitration agreements Section 2 exempts from its enforceability command.

The term “revocable” in the savings clause corresponds to the term “irrevocable” used in the enforceability command. But the savings clause does not use the terms “invalid” and “unenforceable,” even though the enforcement command uses the terms “valid and enforceable.” Concurring Opinion, slip op. at 2-3.

According to Thomas, “The use of only ‘revocation’ and the conspicuous omission of ‘invalidation’ and ‘nonenforcement’ suggest that the exception does not include all defenses applicable to any contract but rather some subset of those defenses.” Id. at 2. He acknowledged that the term “revocable” was ambiguous, that it “arguably” overlaps with “invalidity” and “unenforceable,” and that the Court and lower courts had used the “concepts of revocability, validity, and enforceability interchangeably.” Id.

But he said the ambiguity is clarified by FAA Section 4, which requires courts to order arbitration “upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.” Id. at 3 (emphasis added).

If Sections 2 and 4 are to be construed “harmoniously,” then the “grounds . . . for the revocation” of any contract, which are saved from preemption, must refer to “grounds related to the making of the agreement,” the only exception to Section 4’s specific enforcement command. Id.

And, at least in Thomas’s view, that means that an arbitration agreement falling under the FAA must be enforced “unless a party successfully asserts a defense concerning the formation of” the arbitration agreement, “such as fraud, duress or mutual mistake.” But a defense “unrelated to the making of the agreement—such as public policy—could not” be used as a defense to the enforcement of an FAA-governed arbitration agreement. Concurring Opinion, slip op. at 3-4.

The only remaining question for Thomas was whether the Discover Bank rule was a contract formation rule, and thus one concerning “the making of the agreement.” Citing and quoting various Discover Bank passages that tied the California Supreme Court’s unconscionability finding to the allegedly exculpatory nature of the class waiver, and noting that the California court “did not conclude that a customer would sign such an agreement only if under the influence of fraud, duress or delusion[,]” Thomas concluded that Discover Bank was not a contract formation defense. Id. at 5.

He saw the Discover Bank rule as a defense to the enforcement of a contract based on public policy. “Exculpatory contracts,” wrote Thomas, are “a paradigmatic example of contracts that will not be enforced because of public policy.” And the proof was in the proverbial pudding, for Discover Bank said the class waiver was unenforceable “because [it was] ‘against the policy of the law.’” Id.

Thomas concluded that because the Discover Bank rule “does not concern whether the contract was properly made[,]” it was not a “ground[] . . . for the revocation of any contract” within the meaning of the savings clause. Id. at 5-6. Section 2 therefore did not save Discover Bank from preemption.

THE DISSENT, ‘LINGUISTICALLY SPEAKING’

Associate Justice Stephen G. Breyer wrote the dissenting opinion, which Associate Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan joined. Though Breyer is a brilliant jurist—and certainly one well-versed in the Federal Arbitration Act—even he was unable to articulate a reasonable FAA construction that would justify the dissent’s preferred outcome.

The principal flaw was that the dissent was at least implicitly premised on an FAA purpose and objective of placing arbitration on the same procedurally-burdened footing as litigation. That notion is unsupported by—and inconsistent with—the FAA’s text and the Court’s FAA jurisprudence.

Like the majority, Justice Breyer began his analysis by considering what Section 2 says. “Linguistically speaking,” wrote Breyer, the Discover Bank rule “falls directly within the scope of the [FAA’s] exception permitting courts to refuse to enforce arbitration agreements on grounds that exist ‘for the revocation of any contract.’” (Emphasis in original.) The reason: the California courts had said class waivers were void whether they were contained in an arbitration agreement or in a contract that contained no arbitration agreement. See Dissenting Opinion, slip op. at 3.

From a purely linguistic perspective, the dissent’s conclusion represented one possible Section 2 text interpretation, albeit not as persuasive as those advanced by the majority and the concurrence.

As the dissent pointed out, the majority did not quibble with the plausibility of that linguistic conclusion. But the majority and the dissent quickly parted ways on interpretation and construction matters.

The majority took another step along the interpretive path and considered the consequences of adopting a purely linguistic construction, and whether Congress could reasonably have intended those consequences.

One of those consequences was that the FAA potentially would save from preemption any state law that withheld enforcement of an adhesive arbitration agreement that purported to waive a procedural protection ordinarily available in litigation—provided that the law also withheld enforcement of such a waiver in any contract not containing an arbitration agreement. That would mean that a state could effectively regulate the procedural protections available in a federal law-governed voluntary dispute resolution system to the same extent that it can regulate the procedural protections available in its state law-governed involuntary dispute resolution system.

As the majority pointed out, that would interfere with a key FAA benefit: enabling parties to agree expressly—or to confer upon the arbitrators the authority to determine—the procedural rules that will govern the arbitration. It also makes it more likely parties will be able to achieve arbitration’s other benefits, including speedier and more informal dispute resolution than that offered by state and federal judicial systems.

The dissent was not persuaded by these pragmatic considerations or apparently even troubled by their implications. Breyer noted that the Discover Bank rule against class waivers was not “inconsistent” with arbitration because class arbitration has been used in the past, and parties can agree to it.

But, as discussed, the majority recognized that this conclusion does not follow from its premises—party power to consent to class arbitration can’t transform nonconsensual class arbitration into its consensual counterpart.

‘EQUAL FOOTING’ . . . WITH WHAT?

According to the dissent, saving the Discover Bank rule from preemption was not only consistent with Section 2’s text, but advanced the so-called “equal footing” principle endorsed in previous Court decisions. That principle recognizes that the FAA was enacted to reverse judicial hostility to arbitration by placing arbitrations on the same footing as any other contract.

But the dissent articulated the “equal footing” principle in a way the Court had never done before: “[I]nsofar as we seek to implement Congress’ intent, we should think more than twice before invalidating a state law that does just what [Section] 2 requires, namely, puts agreements to arbitrate and agreements to litigate ‘upon the same footing.’” Dissenting Opinion, slip op. at 5.

That articulation draws whatever persuasive strength it may have largely from rhetorical flourish, not legal substance. An accurate articulation of the equal-footing principle would have been if Breyer had written, “We should think more than twice before invalidating a state law that does just what [Section] 2 requires, namely, puts agreements to arbitrate and all other agreements ‘upon the same footing.’”

But had the dissent used that formulation, many readers would probably think at least twice before putting much stock in its conclusion. How could a state-law rule that has no bearing on most contracts—other than a tiny subset containing class waivers—put arbitration agreements on the same footing as all other contracts, or any other contract?

Had the dissent used a formulation that accurately conveyed its own unique interpretation of the equal-footing principle, it would have said, “We should think more than twice before invalidating a state law that does just what Section 2 requires, namely, puts agreements to arbitrate and agreements concerning litigation ‘upon the same footing.’”

But many readers also would question the validity of that conclusion, because the FAA unquestionably treats arbitration agreements differently than the law treats agreements concerning litigation.

For example, courts likely wouldn’t enforce agreements that purported to require any litigation arising out of the contract to be heard by one or more particular judges, or by a judge with private practice experience in a particular area of the law. But courts ordinarily must enforce arbitration agreements that designate particular individuals as arbitrators or impose qualifications on arbitrators.

No court would enforce an agreement that purported to confer subject-matter jurisdiction upon a court that didn’t have it. But arbitrators never have authority—the arbitral analogue of subject-matter jurisdiction—to decide a dispute unless the parties delegate it to them by contract or submission. Arbitration therefore requires party consent to arbitral “subject-matter jurisdiction.”

Presumably no state court would enforce an agreement that purported to require the court to abide by the procedural code of another state, and presumably no federal court would enforce an agreement requiring it to apply a procedural code other than the Federal Rules of Civil Procedure. But courts must enforce arbitration agreements that require arbitration to be conducted under a particular set of procedural rules. And so the list goes on and on.

The FAA says nothing about putting agreements to arbitrate on the same footing as agreements relating to litigation—or for that matter, on the same footing as a nonexistent class of “agreements to litigate.” And there is no reason to think that is what Congress had in mind when it enacted the FAA.

A bedrock FAA principal is that arbitration is a matter of consent, not coercion. But the opposite is true of litigation, which is a matter of coercion, not consent.

Litigation is a governmentally imposed and regulated system of dispute resolution that applies to all disputes that parties do not agree to arbitrate. State and federal governments make the rules and, subject to a few exceptions—e.g., forum selection clauses, choice-of-law clauses, consent-to-service-of-process provisions, etc.—the parties generally don’t have much say in how and by whom litigation will be conducted, what the courts can and cannot decide, who will be parties, whether judges can depart from judicial formalities or the strict rules of law, and so forth.

Arbitration is a private, optional dispute resolution system imposed and regulated by party consent, and enforced by the FAA. The parties are supposed to make the rules, and for the most part courts can’t meddle in their decisions any more than they can meddle in the choices parties make when they enter into any other contract.

But if a majority of the Court had accepted the dissent’s interpretation of the equal-footing principle, arbitration would potentially be subject to all the special restrictions on party autonomy the law places on parties who might otherwise try to tailor litigation to meet their dispute resolution needs and preferences. While that would be consistent with the dissent’s view of the equal-footing principle, it would subject arbitration agreements to many more special restrictions than the law imposes on contracts generally.

And, as the majority explained, doing so would deprive arbitration of its benefits, discourage parties from agreeing to it, and defeat the statute’s objective of promoting arbitration as an attractive litigation alternative.

The dissent attempted to characterize the Court’s opinion as unsupported by FAA precedent, but that assertion can’t bear even mild scrutiny. For one thing, why would anyone think that prior precedent required the Court to rule that the FAA was intended to put arbitration agreements expressly prohibiting classwide relief on “the same footing” as all other contracts that prohibit classwide relief, when just last term the Court ruled in Stolt-Nielsen that the FAA does not put arbitration agreements that are silent on classwide procedures on the same footing as all other contracts silent on that score?

EVISCERATION AVOIDED

The dissent made other questionable assertions about what Congress intended when it passed the FAA, but it is enough to say that the dissent’s Section 2 interpretation would have largely eviscerated the FAA and profoundly changed the nature of arbitration contemplated by the FAA.

Breyer concluded the dissent analysis with another rhetorical flourish tempered by a dose of unintended irony, reminding readers, “We do not honor federalist principles in their breach.” Dissenting Opinion, slip op. at 12.

But neither do we honor federal statutes embracing those principles—including the FAA—in their breach.

* * *

Full article, including a look not only at the implications of the case and a look ahead to other pending matters that will keep class action arbitration questions alive, published in the September issue of Alternatives to the High Cost of Litigation, available online to current subscribers.

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